The Perfect Storm: Why Small Cars Will Be Big


  • The Perfect Storm

    The Perfect Storm

    A "perfect storm" of market conditions is poised to hit the domestic carmakers, which seem to believe we don't really need fuel-efficient vehicles. | March 18, 2010

My friend is not given to hysterical predictions. That's why I was so surprised when, in the middle of a recent meeting here at Edmunds.com, he laid out an alarming scenario.

We are now at the "floor" of gas prices, he said. In other words, gas costs will be rising from here on in. How steeply gas prices will climb is unknown, and the rise will be out of the control of the most powerful forces in the world, including the U.S. government. (If you want a scary prediction of oil shortages, watch the documentary film, The End of Suburbia.

Foreign automakers clearly believe that rising fuel costs will drive consumers to buy much smaller, more fuel-efficient cars. Honda, Nissan and Toyota are all introducing subcompacts that get 30-plus miles per gallon of gas. Are our domestics among those jockeying for position in a competitive landscape?

Well, here's what my friend had to say: "People talk about tough times for the domestics — they haven't seen anything yet. These market conditions (rising gas prices and stiffer foreign competition) are gathering like a 'perfect storm,' and it will hit them smack in the back of the head."

Some of you might be quick to point out that Chevrolet offers the tiny Aveo, which is actually a rebadged Daewoo. It has, in fact, been a strong seller. But will it compete favorably against the more imaginative, more efficient small-car invasion from Japan?

Leading the charge is the Honda Fit five-door. Available in Japan and Europe for several years, the Fit has a spunky 109-horsepower engine and gets up to 39 mpg with a stick shift. The Fit starts at $14,400, putting it in the "econobox" category. But there is so much fun designed into this car that it definitely isn't a penalty box. The seats fold into different configurations, and side and head curtain airbags are standard. Plus, the Fit's got a cool interior and handles like a sports car.

Toyota has already positioned itself well in the small-car market with the Scion xA and xB, two fuel-efficient, inexpensive and trendy little cars. If that's not enough, it will soon offer the pint-size Yaris. Nissan will follow with its Versa. And there's also the capable Kia Rio hatchback. What will Detroit introduce to compete? Possibly the 2007 Dodge Caliber, selling for about $14,000 and capable of 32 mpg on the highway? Not a bad car — but as a replacement for the lackluster Neon, we may be asking, "Where's the excitement?"

Another friend of mine said that Detroit just doesn't have any interest in making small cars and instead keeps believing that gas prices don't matter. "After the first oil shortages in the '70s, they tried to make small cars. They put out the Vega and the Pinto. The cars were crap and they weren't even fuel-efficient. Now we're in the same position again. Detroit just doesn't get it."

Detroit tells us that it builds the cars America wants. But I don't like to think that Detroit's cars accurately reflect Americans. I've met many Americans who are basically thrifty, hard-working and innovative. Detroit's cars are none of these things. So how does it sell them? It promises us these SUVs, pickups and muscle cars will transform us into rugged or powerful individuals, and gives them names like "Durango" or "Charger" to complete the deception. A few years ago I was in Rome, where they have to drive anywhere they can, including the sidewalk. I rode around all day in a Renault Twingo and didn't feel emasculated as a result. When we stopped for gas, the car took only 3.0 liters (0.78 gallon) — the Twingo is capable of 49 mpg at highway speeds.

Another sign of trouble for U.S. automakers: Only two of the 12 spots in the "green car" survey by the American Council for an Energy-Efficient Economy are occupied by domestic nameplates. And it isn't because the domestics have been hybrid-resistant (except for the Ford Escape Hybrid and Mercury Mariner Hybrid) — only three of the gas-sippers on this list are hybrids. The others are, well, just plain efficient.

It's time for a new vision of America, and we can't look to Detroit to tell us what that will be. The vision will be provided by the most brutally honest force in effect: the free market. As the perfect storm gathers, Americans will vote with their wallets. Will they buy Detroit's latest macho machine and assume that gas prices will drop, in the face of overwhelming evidence to the contrary? Or will they shrug off the libido-prodding ads and show that, in the future, small is big?

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